Wolverton: Comcast-Time Warner deal would be bad news for consumers and valley startups

FILE - In this July 30, 2008 file photo illustration, a silhouetted coaxial cable is photographed with the Comcast Corp. logo in the background in Philadelphia.Comcast Corp. announced Thursday that it is buying Time Warner Cable Inc. for $45.2 billion in stock. The deal combines two of the nation's top pay TV and Internet service companies. (Matt Rourke/AP Photo)

At first glance, Comcast's proposed merger with Time Warner Cable may not look like it would matter much to the Bay Area, since only Comcast is available here. But the deal is bad news for both local Comcast customers and for Silicon Valley's Internet companies.

The merger would not only unite the nation's two largest cable companies, but also would create a behemoth that would control the lion's share of pay TV and the high-speed Internet market, a fact that's drawn less attention in the wake of the deal's announcement. With that power, the company could jack up prices and thwart innovation with impunity. Worse, it could control not only what television networks you can access, but also what Internet sites you can visit and applications you can use.

"The Internet is such an amazing source of innovation, free speech and democratic participation, and suddenly Comcast becomes a gatekeeper for a lot of that," said Craig Aaron, CEO of Free Press, a consumer advocacy group. "The idea that we would give over all this power to a single company should be unthinkable."

Comcast announced earlier this week that it would buy Time Warner in an all-stock deal worth about $45 billion. The combined company would have some 30 million customers, about a third of U.S. households. It would control about half the market for so-called triple play services -- the popular bundle of phone, Internet and pay TV offerings. And it would have more than 35 percent of the Internet-access market and be the dominant player in high-speed connections. Comcast officials have argued that the deal would be good for consumers because the combined entity would benefit from economies of scale that would reduce costs. And they say those cost savings would allow the combined company to invest in new technologies and upgrade Time Warner's relatively slow broadband network.

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But John Bergmayer, a senior staff attorney at Public Knowledge, another consumer interest organization, argued that any savings that result are likely to benefit only Comcast and its shareholders -- not its customers.

"Passing on savings has never been Comcast's business model, and absent a corporate lobotomy, it may never be," said Tim Wu, a Columbia Law School professor and frequent critic of the big telecommunications companies.

But the danger is not just that the combined entity would be less likely to invest in innovation, or might charge higher prices. It could also throttle innovations coming from other companies and entrepreneurs.

The applications of the future, including telemedicine, ultrahigh-definition television and "smart" homes, will benefit from superfast Internet connections. But while such connections are becoming the norm in other countries, they don't exist in the United States outside of a few communities. And a combined Comcast-Time Warner would feel less pressure to upgrade its broadband connections to bring such speeds to its customers.

What's more, Comcast might feel empowered to block or hinder services it sees as competing with its own, whether that's an online video service such as Netflix, an Internet phone service such as Vonage or a smart home service from a startup company like Vera, which has an office in Oakland.

"People aren't as free to innovate without permission if they have to cut Comcast into the deal and get their permission to get into the fast lane on the Internet," said Aaron. "You have a real danger of stifling key parts of the innovation economy."

Comcast officials note that as part of the company's merger with NBC, it agreed to not block rival Internet traffic. Additionally, it agreed to certain provisions that seek to guarantee a diverse lineup of channels on its pay TV network. Under the deal with Time Warner Cable, those protections would be extended to millions of additional customers.

But consumer advocates counter that the Internet provisions of that agreement are set to expire in 2018. And Comcast has repeatedly pushed the boundaries of existing rules, blocking traffic in some cases or treating data from its own services preferentially to those of rivals.

"They have every incentive in the world to be extremely aggressive with other content providers," said John Simpson, director of the privacy project at Consumer Watchdog, a public interest organization. "There's nothing that could stop them."